In 2020, energy company Beowulf Mining Plc saw a major opportunity when building a data center for a Bitcoin miner in Montana. Marathon Digital Holdings Inc., the client, was dependent on third parties for electricity. Beowulf had access to power directly, and it saw a profitable proposition if it mined Bitcoins on its own.
The lucrative margin on Bitcoin mining
The plan paid off when the crypto subsidiary TeraWulf in its filing for going public in 2021, projected 800 megawatts of mining capacity and 10% of Bitcoin network computing power by 2025.
TeraWulf is among those handfuls of companies, including Stronghold Digital Mining Inc., CleanSpark Inc, and Iris Energy Ltd, that discovered Bitcoin mining from their clients and built out their facilities. Energy firms became a major crypto force with low operational risks and high-profit margins.
Gregory Beard, CEO of Stronghold, said that while miners have a decent margin of five cents per kilowatt, those with direct access to power assets and energy sources enjoy lower prices. The extra profit gives energy companies an edge over competitors as the bitcoin mining industry margins have been under pressure.
The bitcoin price is down by 40% from its November peak, and the Ukraine war has increased energy prices. According to analysts, the margins have contracted from 90% to 70%. The Bitcoin block rewards are programmed to be cut in half in three years, so more pressure is anticipated.
Paul Prager, CEO of TeraWulf, says they are better equipped to handle the downside considering the commercial efficiency and risk perspective. According to him, if a transformer collapses on site, one cannot wait for the third-party service provider to come and repair it in two to three weeks.
As per Bloomberg News, Bitcoin miners typically pay to host sites to build data centers and host, run and maintain machines. Service fees are also rising after the Beijing ban on crypto miners allowed U.S. miners to gain a multi-billion windfall. Many miners got more Bitcoin from the network with the same input.
The programming of the Bitcoin network allows a miner to get a fixed number of rewards after they complete processing a block successfully. The higher will be the reward if a Miner or a group of miners have more computing power.
Early adopters in Bitcoin mining like Riot Blockchain Inc. and Marathon are dominant players in computing powers. Another advantage for energy turned Bitcoin miners is that they can sell Bitcoin at mined anytime, unlike others who hold on to it for life.
The slide in Bitcoin prices recently has made companies such as Marathon turn to equity and debt capital markets to raise money and shore up their balance sheets. Mathew Schultz, the executive chairman of CleanSpark, said that they had not sold a single share of equity since November last year. They sold a portion of Bitcoin mined instead of equity. The cost of mining comes to $4500 at CleanSpark’s facilities and gives them a 90% margin.
